2015 (6) TMI 849 - AT - Income Tax

Challenge to the re-opening of assessment - Held that - In the present case, on examination of the reasons given for reopening of the impugned assessment, the allegation of the AO was not that the assessee had not made true and complete disclosure or that the AO had come across certain material facts which were not filed at the time of filing of the return. But the reason assigned was that there was wrong claim of cost of acquisition in respect of the Long Term Capital Gain disclosed by the assessee. Due to this distinction, the decision of Sun Pharmaceuticals Industries 2012 (10) TMI 403 - Gujarat High Court is not applicable on the facts of this appeal. Same ratio of judgments of Vipin Kumar P. Khandcliya 2013 (1) TMI 19 - GUJARAT HIGH COURT and Dish man Pharmaceuticals and Chemicals 2012 (9) TMI 58 - Gujarat High Court are not applicable here. Since the reopening of the assessment itself held as bad in law, therefore, rest of the grounds on merits need not to be adjudicated upon. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Validity of reopening assessment under Section 148 of the Income Tax Act, 1961.
2. Taxability of Rs. 1,46,00,000 received on transfer of rights in the plot.
3. Denial of deduction under Section 54EC.
4. Reduction of unabsorbed depreciation claim by Rs. 1,38,366.
5. Direction under Section 150(1) for issuing notice under Section 148 in the case of another individual.
6. Quashing of the assessment framed under Section 143(3) read with Section 147.
7. Quashing of directions issued under Section 150(1).
8. Taxation of the amount received on transfer of rights as Long Term Capital Gain and allowing indexed cost of acquisition and deduction under Section 54EC.

Detailed Analysis:

1. Validity of Reopening Assessment under Section 148:
The assessee challenged the reopening of the assessment on the grounds that there was no escapement of income and that the term "previous owner" should not be restricted to a tenant. The AO, however, believed that the cost of acquisition should be treated as 'nil' since the lease rights were acquired directly from GIDC, the owner of the land, and not from a previous tenant. The CIT(A) upheld the reopening, stating that material facts were not fully disclosed during the original assessment. The Tribunal found that the reopening was based on a misinterpretation of Section 55(2)(a) and that all material facts were disclosed during the original assessment. Therefore, the Tribunal held that the reopening of the assessment was invalid.

2. Taxability of Rs. 1,46,00,000 Received on Transfer of Rights:
The AO taxed the entire amount received on the transfer of rights as income from other sources without allowing any cost of acquisition. The assessee argued that the cost of acquisition should be allowed against the sale value. The Tribunal found that the AO's interpretation of Section 55(2)(a) was incorrect and that the cost of acquisition should be allowed. Therefore, the amount received should be taxed as Long Term Capital Gain after allowing the indexed cost of acquisition.

3. Denial of Deduction under Section 54EC:
The assessee claimed a deduction under Section 54EC for the investment made in REC bonds. The AO denied this deduction, but the Tribunal found that the assessee was entitled to the deduction under Section 54EC as the amount received was to be taxed as Long Term Capital Gain.

4. Reduction of Unabsorbed Depreciation Claim:
The assessee did not press this ground, and it was dismissed by the Tribunal.

5. Direction under Section 150(1) for Issuing Notice under Section 148:
The CIT(A) directed the AO to issue a notice under Section 148 to another individual, holding that the capital gain was taxable in that individual's case. The Tribunal found that the CIT(A) had overstepped by issuing such directions and that the reasons for reopening the assessment should not be expanded at the appellate stage.

6. Quashing of the Assessment Framed under Section 143(3) read with Section 147:
Since the Tribunal held that the reopening of the assessment was invalid, the assessment framed under Section 143(3) read with Section 147 was quashed.

7. Quashing of Directions Issued under Section 150(1):
The Tribunal quashed the directions issued by the CIT(A) under Section 150(1) as they were based on an incorrect interpretation of the law.

8. Taxation of the Amount Received on Transfer of Rights:
The Tribunal held that the amount received on the transfer of rights should be taxed as Long Term Capital Gain after allowing the indexed cost of acquisition and the deduction under Section 54EC.

Conclusion:
The Tribunal allowed the appeal partly, holding that the reopening of the assessment was invalid and that the amount received on the transfer of rights should be taxed as Long Term Capital Gain with the allowable deductions. The directions issued by the CIT(A) under Section 150(1) were also quashed.